Thursday, September 25, 2008

Ever Since Hewlett-Packard began its journey from a garage and became one of the world’s largest companies, the idea of a start-up has often been connected with humble beginnings. You pooled in some savings, quit your job and started with nothing but a laptop, mobile phone and a dream.

Funds were initially raised in small installments and investments were also made in modest complements. To start small, learn and then expand was the route entrepreneurs took.

But what if you worked in an industry where a billion dollars is no big deal? What if you need hundreds of millions of dollars to start, and as much to scale up? Can you make it big in an industry that thrives on megabucks and compete with big business groups playing in the same field? Or should you just stick with pickle-making, sericulture, or a one-person consultancy?

Welcome to the era of ivory tower start-ups. It no longer takes an industrial conglomerate and surname-led brand to start cash-rich start-ups. Investment companies are on the lookout for managers with entrepreneurial spirit and the right skill sets to start killer companies. And the combination is creating some start-ups in the big league.

The telecom tower business is a classic example. From being almost a non-existent business few years ago, it now has all major telecom players scrambling to hive off their tower infrastructure to unlock value, and international players vying for a toehold in this growth story. And as India’s mobile subscriber base continues its fairy-tale run, the towers which power the cellular networks are enjoying a dream run too.

Today, the country has 1,10,000 telecom towers. By 2012, it is projected to balloon three times as the mobile subscriber base touches 500 million. Is there room in it for an entrepreneur with the skill and the knowledge? “Yes,” according to Xcel Telecom MD Sandip Basu.

Besides financial muscle, start-ups in this space need skilled teams that can set up towers fast and scale the business quickly. “And skilled manpower to set up and maintain towers is not easily available because it is still a relatively new industry,” says Mr Basu. This is where entrepreneurs with the knowledge and the urge to play the big stakes come in.

In October 2006, Q Investment incubated Xcel Telecom, a standalone tower firm, and roped in Sandip Basu to manage it. Mr Basu had been eyeing the tower segment and knew that subscriber numbers made leasing towers to operators a viable business proposition. So he grabbed the chance.

“I knew it was an emerging opportunity,” says Mr Basu. “But it is a very capital intensive business. Q Investment had done a lot of research in this phase. When I met them, Q Investment was already looking at tower opportunities.” Q Investment is pumping in $500 million into Xcel Telecom and is targeting 25,000 towers in three years both through expansion and acquisitions.

Entrepreneurs looking to set up tower networks need not be overwhelmed by the need to raise large sums as a lot of companies were looking to finance these ventures, according to Mr Basu. “There is an assured cash stream and no ambiguity about accruals. Though the industry is new, it is not difficult to get funding (both on debt and equity) because of the huge growth potential.”

The payback time for phone operators is typically more than a decade, but it is just five years or less for tower companies. Tower companies have been found to be 10% more capital efficient and 20% more operation-efficient than operators because, this is their core business. Monthly rents, varying from Rs 40,000 to Rs 1 lakh depending on location, don’t diminish but only see annual increases. While incremental costs go up only 10%, revenues increase by 80%.

There are quite a few survival tips from industry veterans who say the telecom towers business is all about costs and scale. The first challenge, of course, is to secure capital at reasonable costs. “If you are putting up infrastructure at a cost of capital that is higher than that of operators like Airtel and Idea Cellular, then you are starting at a disadvantage. The ability to get smart capital and a moratorium for two-three years when you are scaling up operations is critical,” says Arun Kapur, president and executive director of the Srei group-backed Quipo Telecom Infrastructure.

Expansion is also crucial to grow rapidly. For instance, Bharti Airtel, also a player in this space, plans to add 30,000 towers in this fiscal year and that means nearly 100 towers would come up each day.

And a tight lease on costs, that good old startup virtue, would be required too. “It is essential to have the ability to bring operating expenses down. With operators lowering the tariffs and reaching out to lower paying subscribers, they want partners who can take costs off on the operating side. The ability to innovate and bring down capex and opex is crucial,” says Mr Kapur.

Also, the ability to bring in more tenants on towers is important. The more the number of operators sharing the tower, the more the rent and quicker the returns on investment. With a single tenant, the gestation period can be as long as ten years. “If you get the number of tenants right, you got the business model right,” he adds.

A big boon for the industry is the absence of any kind of licensing, though the telecom sector is highly regulated. So, the entry barriers are not high. But on the flip side, the setting up of a single telecom tower requires nearly 40 clearances, ranging from those from the Wireless Planning Commission and municipal corporation to soil investigation clearance and state electricity boards. These are, clearly, barriers to entry despite the massive need to expand telecom networks to every nook and corner of the country. While the huge demand for towers continues to make it a lucrative industry, those who started earlier are better placed. Firms which have already signed master service agreements are better than those starting up now.

With the mushrooming of many small tower companies that have just about 50 to 100 towers in their portfolio, acquisition opportunities are also emerging in the sector. Xcel Telecom, for instance, has an acquisition war chest of $2 billion.

Monday, September 22, 2008

"We are a team of two looking to enter the KPO business. I am a medical doctor with a postgraduate degree in hospital administration, with seven years work experience in healthcare management. Currently, I am working as a healthcare analyst. My partner is a software engineer with three years experience in developing various business applications. Both of us come from a middle income background. With my expertise in the healthcare space and my partner’s in the IT space, together we are looking to start a healthcare KPO in either Bangalore or Gurgaon. Since both of us are sole breadwinners in our families, we would like to have your guidance about how to move out of our current jobs slowly and go about our venture? Is it advisable to work part-time? Also, we are also worried about the capital investment needed for this space, since we both earn a salaried income, how do we go about convincing investors to invest in a completely new company?"

Raman Roy Chairman & Managing Director, Quatrro

Your intention of starting a KPO business is noble and I would encourage you and your partner to actualise your thinking. I would, however, suggest you take a relook at the order and the timing of what you want to do and when. Any business revolves around fulfilling customer needs and, to state the obvious, the objective is to generate sufficient revenues to cover costs and be profitable. Whether it is a KPO or any other business the principle remains the same. Everything in the business needs to be architected to meet the needs of the customer. The competencies and capabilities of the management are necessary but not sufficient conditions. The customer needs (and thus the product proposition) are typically complex and need more than just the capabilities of the entrepreneur or the management. What you need to answer is, what is the product proposition that you have for your customers and what do you need (in addition to you and your friend) to be able to deliver it? How is this product proposition that you are (or will) construct compare with what is already available in the market to the customer and how is your proposition different or superior? In cases where the product proposition is not different or superior, how do you intend to compete with the competition and is the market large to have your offerings in addition to what is available today? Are your price points acceptable to the customer and sufficient to allow you to make a profit to meet your personal objectives?

As you prepare a plan to answer these questions the answers to what all has to be done and when it has to be done typically starts to emerge? Let me explain. Look at creating a business like cooking an exotic dish. You first need to have some idea of the end result of what the exotic dish is going to be. Then you need the various ingredients for the dish like meats and vegetables of various types, spices and condiments of various types, other garnishing and sauces etc. An expert chef will add different quantities of the ingredients at different times depending on need and what end result is needed. The chef may decide to make a particular dish as he/she has some ingredients available... but he/she still needs to get the balance items based on the needs of the dish. In the same way, for a business you need a combination of skill sets, capabilities and competencies packaged together as a product proposition for the customer who will pay a price for the ‘product’ or ‘service’. From what you state, between you and your partner you have the domain knowledge and capabilities in the healthcare and IT arena. You need to ask what else is needed to create a value proposition for your target customers. Obviously, you and your partner will use your competencies and your knowledge of your areas of expertise and your understanding of the needs of the customer to create this ‘proposition’. You then need to validate the proposition and answer some basic questions. Based on the answers you will modify or fine tune the product proposition. Once you have a somewhat realistic product proposition you will ‘flesh’ it out or ‘explode’ the proposition to determine what all is required in addition to the skills you and your partner bring as also the timing of the needs of all the inputs needed.

This will form the first business plan for your offerings. The essential content of this plan will be the timing that you and your partner need to follow to join the new venture, the funding needs and the timing of the funding. Some realities: Competency in a particular domain (healthcare and IT in your case) alone do not guarantee a product proposition that will be attractive to the customers and be profitable. A good product proposition alone does not mean it is a business plan. A business plan does not guarantee funding. Funding does not guarantee success. All these are necessary steps... some of these steps are sequential and some can be done in parallel.

Your questions of whether to work part-time or full-time and how to tie up the funding comes as an out come of this planning process. The product proposition and the business plan can be conceptualised part time or full time. If the planning process is robust then the answer will leap out at you from the business plan itself. The business plan discussed with potential investors will also tie up funding and once the funding is tied up you and your partner will be able to determine if it is worth taking the risk of leaving the jobs and tying up the other ingredients of the product proposition. There are three constituents to a business: customer, employee, and investor. The business plan has to address all three. If you can cater to all these three constituents then you have a good business. I have seen meticulous and detailed plans that lay out week by week what will happen and I have seen “cowboy” shoot from the hip attitude that says ‘we will figure it out’. Both can succeed... The only common element that I have seen is that all successful business have customers that are willing to pay for the services/products. In the end that is all that matters.

Sunday, September 21, 2008

If it were not for the ingenuity of W.K. Kellogg, the world today might never know flaked cereal. A master marketer and inventor, Kellogg revolutionized the breakfast food industry when he decided to start his own company and sell toasted corn flakes back in 1906. Today, that same company has grown to include almost 26,000 employees and earns over $11.5 billion in revenue.

Willie Keith Kellogg was born on April 7, 1860 in Battle Creek, Michigan. He was the seventh son of Ann Janette and John Preston Kellogg, a struggling entrepreneur himself, who was trying to support his family by building a broom-manufacturing business. By the time the young Kellogg was 13 years old he had shortened his name to Will and had begun working for his father. He would regularly visit local grocery stores and use his natural salesmanship to sell his father’s brooms. “As a boy, I never learned to play,” he recalled. Eventually, Kellogg would drop out of school to work in the broom business full time.

Kellogg consumed himself with brooms until 1880, when he left the business to go work with his older brother, Dr. J. H. Kellogg, at the Battle Creek Sanitarium, a local health resort. There, Kellogg took on whatever tasks were required of him, from accountant to handyman. He would run his brother’s book subscription service, as well as manage the Sanitas Food Company. Sanitas arose out of his brother’s attempts to find healthy and nutritious food to serve his guests. He had built a test kitchen at the sanitarium to experiment with a host of new foods.

Despite having a steady job, Kellogg was unsatisfied with his life. He had gotten married, had four children, and was finding it difficult to support them on his meager salary. The long hours he was working were also taking their toll on him. In an 1884 journal entry, he wrote: “I feel kind of blue. Am afraid that I will always be a poor man the way things look now.”

Kellogg began spending more and more time in the Sanitas test kitchen. Together with his brother, they began playing with ingredients to create different breakfast products. Finally, Kellogg stumbled upon one that he thought had much promise: toasted wheat flakes. While his brother wanted the flakes to be crushed, Kellogg insisted that they had more potential if served whole.

Almost immediately, Kellogg became convinced of the opportunity behind the flakes. He saw them as playing a key role in the future growth of cereals and other health foods, an industry Kellogg thought had much potential.

Through Sanitas, Kellogg and his brother began selling the flakes, relying little on advertising and largely on direct mail campaigns. It saw modest success in its early stages, but Kellogg wanted to expand the business. An increasing number of cereal companies were popping up in Battle Creek and Kellogg wanted to stay ahead of the game.

Kellogg’s brother, however, resisted the idea. He was happy with the way things were going. With that, Kellogg decided it was time to venture off on his own.

Saturday, September 20, 2008

When Tom Monaghan was a young boy, he wanted to be three things: a shortstop for the Detroit Tigers, a priest, and an architect; founder of a multi-billion dollar pizza company was not on the list. However, that is exactly what Monaghan would become. Since launching Domino’s Pizza in 1960, Monaghan has grown the company into an empire, with over 8,000 locations in more than 54 countries around the world, and sales that exceed $4.6 billion. Nevertheless, the story of Monaghan’s life was not always as sweet as the success he would later achieve.

Tom Monaghan Founder Dominos Pizza

Thomas S. Monaghan had a challenging childhood. Born on March 25, 1937, in Ann Arbor, Michigan, his father passed away on Christmas Eve when the young Monaghan was just four years old. “My father was my hero and my favourite person in the world,” he recalls. The death proved equally difficult for Monaghan’s mother, who found herself unable to cope with the responsibilities of being a single parent. With her weekly salary of only $27.50, she was left with little choice but to send her two sons to the St. Joseph’s Home for Children, a local orphanage run by a group of Polish nuns.

From the second grade, Monaghan says he grew up determined to be a priest. “I entered the seminary in tenth grade, but got kicked out,” he recalls, “I think probably because I was more rambunctious than most kids.” He returned to regular school but never managed to get good grades, placing last among his 44 classmates. “They weren’t even going to graduate me, but I pleaded with a nun,” says Monaghan. “She said, ‘Well, you got good marks in the seminary, so I’ll let you graduate. But don’t ever ask me to recommend you for college.’”

Following high school, Monaghan used his savings to enroll in Ferris State College in Big Rapids, Michigan. “I went for a quarter, earned good marks, and got accepted at the University of Michigan,” he says. “But I didn’t have any money.” As a result, Monaghan dropped out of college and hitchhiked to Chicago to look for employment. Instead of taking on a job, Monaghan decided to take advantage of the GI Bill to attend college for free.

In 1956, Monaghan enlisted in the Marines, which would mark a major turning point in his life. “It was the best thing that ever happened to me,” he recalls. “I attribute my success in business to the Marine Corps.” When he finished his military service in 1959, Monaghan went back to university, this time with an interest in architecture. However, he was again unable to pay for his books and thus forced to drop out after just three weeks.

It was after a conversation in 1960 with his brother, a mailman in Ann Arbor, that Monaghan’s life would take a new direction. A friend of his brother’s was selling a pizza shop in Ypsilanti, Michigan, called DomiNick’s. His brother was interested but afraid to buy into it alone. “I was having problems paying my way through school, so I said yes,” recalls Monaghan. With a $900 loan from the bank and a 15-minute lesson in pizza-making from Dominick, the brother’s had opened their new pizzeria and were off.

This is what we call in the business “a good problem to have”. The hiring and on-boarding of professional talent is a classic growing pains-type of problem that is faced by every entrepreneur.

From my work in Silicon Valley, I have observed that startups in any industry go through three distinct phases of organisational growth characterised by very different needs. Stage One is all about innovation — creating that “killer product”. In this stage the strategy focuses on speed to market and the emphasis is on creating a culture of innovation by hiring and nurturing creative talent and product development skills, in an organisation that is relatively unconstrained by formal structure and roles.

Stage Two is all about market penetration — creating as broad a footprint as possible for the product. In this stage, the strategy focuses on building awareness and creating sales channels, and the emphasis shifts to building a sales culture by hiring market developers and salespersons, and getting more sophisticated in terms of measuring and rewarding sales performance.

Stage Three marks the “graduation” from startup to a viable business. It is entered when the company realises that it is has grown so quickly that things are getting out of control, and there is a risk of frittering away the gains it has achieved to competition that will quickly smell success and move in, sometimes with deeper pockets. The focus of this stage of growth is profit extraction. The strategy focuses on balancing the competing demands of effectiveness and efficiency — bringing costs and quality under control while maximising revenue. The secret to success in this critical third stage is recognising and managing the interrelatedness of the 3Ps of successful growth — professionalising, introduction of process, and profit extraction.

Professionals bring expertise and experience with having “been there, done that”. The introduction of process brings greater predictability that is critical for better coordination in a growing business, and greater control over cost and quality. Finally, the emerging emphasis on profitability marks the transition from a wistful startup to a viable commercial business. Many startups fail because their leaders don’t recognise that their organisation and mindset regarding how they are structured, how roles are defined, who they hire, how they are rewarded, etc., needs to consciously make the shift from one stage of growth to the other.

The introduction of the 3Ps of growth into a startup is always a very difficult challenge. Startups are often fired by visionary even missionary zeal, and a sense of intimacy, of being like family. That is exactly what is needed for success in Stages 1 and 2, but could also become the biggest stumbling block to success in Stage 3. The hiring and introduction of professionals will often become the lightning rod for drawing criticism from employees who are used to a “just do it” way of operating and see the professional as the one who “doesn’t get it”. The trigger for this ire is almost always the introduction of process — which is the ugly “P-word” in the world of entrepreneurs — and the increasing emphasis on cost or bottom-line considerations.

The writer asks the question about red flags he/she should look for in a resume when hiring senior staff for the first time in a startup. The fact that he/she recognises this is going to be a challenge is a good sign. So how should we go about it?

Success of senior staff plays out in three acts spread out over a year or so. Act One is the hiring of the right person. The entrepreneur should look for fit in terms of attitude, experience, and expertise in that order of priority. Attitude in terms of willingness to work in an environment that may be more rough and tumble than orderly. Experience of having worked in unstructured and rapidly changing situations, introducing process and discipline into it and dealing with/overcoming resistance. And expertise in the relevant functional area. There is nothing wrong with hiring someone with a big company background to work in a startup as long as they meet the selection criteria. On the other hand, selecting someone whose resume suggests a gap or lack of fit in one of the three ingredients attitude, experience, or expertise, could be risky.

It is important, however, for the entrepreneur to recognise that success will depend not only on good hiring, but also on Acts Two and Three — on-boarding and on-going support. By definition, every startup feels different and operates differently. Any new hire that comes into senior positions will be seen and treated as an “outsider”. It will be important to anticipate this reaction and pave the way for a smooth on-boarding of the new senior hire because startups cannot afford disruptive internal conflict. Within months, as the professional starts introducing the business processes that he was hired to implement, waves of resistance are likely. This too can be managed with sufficient forethought and planning. These actions are not just important, they are critical to ensure the startup moves past its growing pains to becoming a viable business.

Monday, September 15, 2008

The underlying purpose was to demonstrate the point that many important decisions, especially hiring decisions, are based on invalid assumptions, false impressions, personal beliefs, and lack of objective data.

With this article as a starting point, let me offer some expert advice on how to make really bad hiring decisions:

1.Make Emotional Decisions and Justify them with Facts.

Most interviewers make quick judgments about a candidate based on the four “A’s” – how attractive, articulate, assertive, and affable the candidate is. Candidates who pass the test are asked easier questions, with the interviewer looking for information to justify the positive impression. Contradictory and negative information is ignored. Candidates who don’t meet the appropriate first impression standard are assumed incompetent, with the interviewer asking tougher questions and seeking only information to prove their initial emotional judgment. Why waste your valuable time? Instead, just conduct a five-minute interview and forget collecting any facts. It won’t make any difference in your final decision, anyway.

Do Not Seek Out Objective Data if it Contradicts Your Beliefs Or Ignore it if You Find Some.

I remember meeting a very attractive and seemingly quite competent candidate for a VP HR spot, who gave a superficial answer to an HR strategy question. I had to fight with myself about whether to ask a challenging follow-up question which would prove she was unqualified on this important job criteria. After some soul searching, I asked the question, which she flubbed, and she was not presented. The point of this is that it’s very tough to eliminate a candidate you like, and even tougher to seek out positive information for candidates you don’t initially think would fit. So rather than get to the truth, go the easy route, and trust your gut feelings and first impressions.

2. Make Sure No One Knows the Real Job.

The purpose of the interview is to determine competency and motivation to do the actual work required. If you don’t know what work the candidate is actually going to be doing it’s impossible to assess motivation. Competency, on the other hand, is pretty easy to figure out with just a rough understanding of job needs. Unfortunately, when you look at the underperformers in your company, you’ll discover most of them are quite competent to do the work, they just don’t find the work they’re doing very satisfying. These are the people that need to be over-managed and pushed to achieve average results. So to make sure you hire more of these people, go out of your way to not tell the person you’re hiring anything about the job until the day she starts. What a surprise that will be.

Use Skills-Based Job Descriptions to Find, Screen, and Assess Candidates.

The best candidates tend to have a track record of achievement, comparable (but not identical) skills, and are quick-learners. This is how the best talent is promoted within an organization. Yet, when hiring from outside we use a criteria that eliminates these top performers from consideration, seeking only those candidates who have exactly the right skills doing exactly the same work. The only people who fit this criteria are average candidates. So keep up the average work. While you won’t get promoted, you will get hired.

3. Make Sure Your Ads are Hard to Find.

When top people begin the job-hunting process they tend to seek out former associates, Google for jobs (e.g., “software sales jobs Dallas”), use social networking sites, or conduct some top-down industry research looking for the best industries and companies that meet their needs. If your jobs can’t be easily found by candidates using these techniques, you’ll never see the best people. To continue not seeing any good people make sure you continue to post your ads on the major boards, where the best people look last.

Write Boring Ads that Start with the Req Number. If your ads are found, make sure they’re so boring that they preclude a good person from even applying. You can do this by leading off with the req number, a dumb title, telling the person whether the job is full-time or not, and if you’ll pay for relocation. Then go into a boring description of the job. Then make sure you clearly state that the candidate must not apply unless the person possess a laundry list of skills and experiences that was lifted from some job description written a few years ago.

Make Sure that Interviewers are Untrained and Can Ask Any Questions They Want.

Hiring mistakes are no big deal, so why not let anyone interview the candidate, ask any questions they want, and then ask them whether you should hire the person using whatever criteria they think appropriate. To make matters worse, only let untrained interviewers meet your candidates. This will certainly impress those top candidates you see regarding your company’s level of professionalism.

Add Up the Yes and No Votes. Here’s a sure-fire way to get the hiring decision wrong…let each untrained, biased, emotional, and superficial interviewer have a full yes/no vote on who should get hired. Then to even out these errors, give a no vote more power than a yes vote, give unprepared interviewers the same voting rights as prepared interviewers, and then add up the votes. To make sure this process works as described, do not challenge anyone’s assessment, just in case the person might get offended. This is more important than the right answer.

Force Candidates to Formally Apply before You Can Even Chat With Them. Top people, when they just enter into the job-hunting process, have lots of questions and are comparing different companies and situations. One good way to prevent seeing or hiring any of these people is to not let them just talk with a recruiter or hiring manager unless they formally apply first. Most won’t, but if you have some persistent person who still decides to apply anyway, make sure you have him complete a rigorous application process, submit a resume and a statement that everything stated is true. Of course, to make sure a good person doesn’t sneak through this bureaucratic blockade, be sure not to contact the person for a least a week. Collectively, this will show the person you mean business.

Focus On Compensation and Skills Rather than Career Opportunities. Since the best people are more concerned with career growth, the opportunity to make an impact and want to know the broad details about the job before getting serious, we don’t want to give them any of this information. Who knows, somebody good might actually be interested in and qualified for one of our open jobs. Instead, to prevent this from happening, don’t discuss the job at all, first screen candidates only on their skills and then tell them what your comp range is. If there isn’t a fit here, don’t waste your time, just go on to another candidate. You certainly wouldn’t want to ask candidates about some of their major achievements first and see if any of your other openings better match their needs. They actually might be interested in one of these jobs, despite the comp range. Wouldn’t that mess things up?

You can see why these are my favorites rules for not hiring good people. What amazes me is that so many companies follow them and expect different results.

Friday, September 12, 2008

THE VALUE OF INNOVATION: HOW DO YOU RECOGNIZE & ENCOURAGE IT IN YOUR ORGANIZATION??

Innovation has always played a pivotal role in the history of mankind. Be it the discovery of the wheel, making fire, the first towns of the new civilizations or the discovery of the first vaccine and all other breakthroughs in modern science & technology, it can all be attributed to that onefactor: the innovative mind!!

The innovative process begins with the determination of a creative person tomove away from contemporary reality by making something new. Developing creativity begins with asking questions about the present situation: Have I tried my best? Is the current situation ideal? Isn't there a better method? Such probing stimulates one's latent creativity: the more one probes the greater will the results be.

In corporate management, innovation refers to the creation and introduction of new things, better use of goods and more efficient services and systems. A concerted, planned and organized effort is required if an innovation is to be fully developed and completely implemented. Within industry, the first step towards this objective is to make innovation one of the prime objectives of the company and to allocate resources in that direction.

Management can promote innovation with more success if they can identify beforehand individuals who can generate creative ideas and think of novel approaches to problem solving. Psychometric tests can play a major role in identifying those individuals with ability for divergent thinking and a knack for coming up with original ideas. These individuals if provided with environments conducive to their inquisitive minds and "will find the answer" attitudes are capable of taking the organization's success to new heights.

Recognition and remuneration are extremely important in prompting and sustaining innovation. Employees cannot be expected to develop their innovative skills if they believe their efforts will not be appreciated. Any idea that shows promise in furthering the organization's limits should be encouraged by the management however strong the pressures for conformity and continuity may be. After all, history confirms that innovation almost always brings worthwhile benefits to business and industry.

Glue like Mindsets, die hard Habits and concrete wall like Attitudes are key hindrances to creativity.

Thursday, September 4, 2008

Money, it’s a crime. Share it fairly but don’t take a slice of my pie —Pink Floyd.

They might as well have been singing this song for professional investors who invest seed capital in businesses that are now ready to bloom. But to bloom, these businesses need more capital and these investors are not excited about it as they do not want to get diluted and lose control. They also don’t want professional investors into the business as it dilutes their stakes. This affects the business models and many times companies with good business models simply fold up.

RK Reddy, when he moved out of Fractal Analytics blamed the fallout on this phenomenon. “It is happening everywhere in India. Getting funding for new ventures for young businessmen is not easy in this country. It is not like the US where even venture capitalist help you in your funding requirements before you are even a graduate. India in this respect still has a long way to go,” he says. Mr Reddy is the co-founder of Fractal Analytics who moved out to start on his own along with another partner due to the difference with the investor in Fractal Analytics.

When Mr Reddy passed out of IIM-A, he and his friends thought getting professional investors to invest in their ideas will be easy. They were from the same batch of IIM-A and had enough work experience to get seed capital. But that was easier said than done. He and his friends had a tough time talking to investors and then finally ended up with a professional investor who invested the initial seed capital to start Fractal Analytics. No venture capital or institutional investor was interested in putting the seed capital.

Another services firm founded by a group of professionalsturned-entrepreneurs thought they had solved their one of the most pressing problems when they finally found a business group willing to fund their start-up. But like any relationship that goes through different phases, this one hit a rough patch a couple of years into its existence. On one hand the entrepreneurs had everything they asked for — investors who were on the board but did not interfere in the daily functioning and the strategic decisions were taken by the management team. “This is one of the biggest nightmare for an entrepreneur. But we were very lucky in this,” recollects one of the founder-promoters.

However, on the other hand, a passive investor was not the ideal recipe for growth. As the entrepreneurs soon found out as they grew bigger. Now they needed more management bandwidth and from professionals who could bring in more than money to the table.

The choice was a difficult one. Either the founders or the investors had to dilute their stake and make a compromise. Expectedly, the investors were unwilling to dilute their holdings. At this stage, the company could’ve gone the Fractal way with the founding team and the investors going different ways, and one of the members of the founding team chose to do exactly that. Frustrated by the slow pace of growth when its peers where growing much faster through acquisitions, one of the members moved out.

A solution was reached a year and many months later when the investors finally agreed to sell part of their stake and the company was able to get in an investor who would take the firm to the next level. “Had we done this earlier, we could’ve probably grown much faster. But sometimes you simply have no choice but to be patient. Indian culture is different from the American culture,” says one of the founders who stayed on.

Venture capital firms face these problems on a regular basis where they see a clear conflict between the promoter and the investor. These firms though invest in companies at the seed capital levels, they do it only if that sector is in vogue. In many cases these firms do not want to take a contrarian view and prefer to go with the trend. “Many venture capital firms will not have issues investing into a firm that is into social networking but will not invest into a business that is based on knowledge or hard skills,” says an entrepreneur who has moved out of a firm to join the competitor.

VCs on the other hand do not like to be tagged based on trends or any other parameters. Each and every venture capital firm operates differently and works in terms of domain expertise. If they do not understand the business they simply want to avoid the investment. In general they prefer businesses that are already on a growth path than be the seed investor.

“Individual investors work well when it comes to seed capital or absolute start-ups. Their requirements and expectations are different.

But when the company is on a growth path, institutional investors work better for the firm. These new investors are in a better position to help and guide the firm as compared to individual investors,” says Alok Mittal of Cannan partners, a firm that provides venture capital. When there is a VC there is a healthy board process which is absent in the case of an individual professional investor. Getting the VC funding at initial levels or seed levels is not easy in a country like India. Good business models will suffer in the hands of individual investors and this may kill entrepreneurship in India. Though VCs are saying that they are looking at good business models which require seed capital, these firms are more interested in how fast a company can be taken public and latch on to market capitalisations while the trend is hot.

Like Mr Reddy says: “Before I start something on my own, I will first look at the quality of investor. Everything else comes later.”

Article Resource:The article appeared in The Economic Times, Mumbai in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

Wednesday, September 3, 2008

From around 10 people in the first few years to 200 people in two centres at Mumbai and Bangalore, Cross-Tab has come a long way to carve a niche for itself as a market research outsourcing provider.

During its seven-year-old history, Cross-Tab had enough brushes with fate to turn into a failed dotcom venture or a small outfit operating from one of the bylanes in Mumbai. But, Cross-Tab successfully negotiated both these challenges to scale up and re-invent itself as a market research outsourcing (MRO) provider. Today, the firm founded by three entrepreneurs — Kedar Sohoni, Ruchika Gupta and Praveen Gupta — operates from one of the spiffy new buildings which have sprung overnight in Malad, the BPO hot spot of the city.

“The entry barriers in this business are not high. But to grow and scale up — that is a high barrier,” says Mr Sohoni, about the firm’s journey from a start-up that wanted to leverage the internet for market research to a domestic market research agency to its current avatar as one of the leading third party MRO players in the country.

From around 10 people in the first few years to 200 people in two centres at Mumbai and Bangalore, the company has come a long way.

Not only have the entrepreneurs made this business transformation, but they have also worked with two sets of investors in the process. The initial investor, ICICI Venture, sold its stake to the Mittal group in 2003 and the new investment in some ways also catalysed the growth of the company in terms of getting another board-level person who could provide strategic inputs to the firm. Kedar, Ruchika and Praveen were IIM and BITS, Pilani graduates with experience in marketing and research, while Ashwin Mittal, who joined the board as one of directors representing the Mittal group, was a former strategy consultant from Cap Gemini in the US.

“The turning point for the company came in 2002-03. Till then, the firm was into market research for domestic firms,” says Ashwin, who after a year of being with the company as an investor was inspired enough to join it full time in 2004. The story goes like this: One day, when Cross-Tab was making a presentation to one of its clients, a senior executive in the audience from the client’s multinational parent was so impressed that he asked Cross-Tab to also work for them.

Around the same time, the company also became a member of the European Society for Opinion and Marketing Research and started getting a lot of enquiries for doing outsourced market research. The bulk of the work in outsourced market research involves processing information obtained from market research surveys, analysing it and generating reports. Conservatively, the opportunity in this space is estimated to be a quarter or $5 billion of the $25-billion global market research pie. Cross-Tab has already successfully made this transition.

It has also gone a step ahead in doing end-to-end work for corporates that comprises the full spectrum, from designing the survey and managing it to processing the end-results. “For global surveys, we also have tie-ups with partners in other countries,” explains Ashwin.

The challenges it now faces are those that come with scaling the business up to the next level — creating process and systems and also positioning itself in the global market for high-margin business opportunities. At this stage, the company does not have many of the resources that a larger organisation would have — such as a CFO or a human resources head. It also does not have a sales team, which is important if wants to address the corporate market directly. Its board also currently consists only the founders and three directors from the Mittal group.

Some of the initial steps in this direction are just being taken. A few months ago, the company recruited a global CEO with about 13 years of experience from no less a company than Microsoft. It also appointed Simon Chadwick, former CEO of market research company NOP World and who has worked extensively with the WPP Group, as a strategic advisor.

It now plans to set up a global advisory board that will guide the firm, and also give it contacts and credibility. But the journey ahead will not be simple. For one, the firm will have to compete with other MRO players in India (all the top players are estimated to be growing at about 80% annually) as well as global market research agencies, in some cases. Also, a few leading global market research firms have set up captives in the country enabling to compete on price points with Indian players.

But the untapped market opportunity is huge and growing. And Cross-Tab’s entrepreneurs have shown the stomach to emerge successful from tough situations, and the ambition to thing big when the opportunity presents itself.

Ashwin Mittal (L) & Kedar Sohoni Directors, Cross-Tab

About Cross Tab:An Overview

Cross-Tab provides offshore outsourcing and paneling services in the market research & analytics domain to global clients in North America, Europe and Asia-Pacific. They are also a full service market research agency in India, specializing in online research.

Cross-Tab's offshore outsourcing services for market research and data analytics processes help clients to reduce costs, improve productivity and gain access to the latest tools and technologies. This is done with short turnaround time, high quality and accurate service delivery from their service centers in India.

Cross-Tab is an online survey company having proprietary B2C and B2B online panels in India. Global online research companies and corporates are using Cross-Tab’s panels to reach online target respondents in India. Cross-Tab is presently developing online panels in other Asia Pacific countries to provide global online research companies with a better reach to the online population in the region.

Cross-Tab pioneered online market research in India, and is a leading online survey company in the country. Cross-Tab’s full service market research solutions are empowering clients, with the ability to make better decisions with speed, efficiency and cost effectiveness. Cross-Tab's research products and services enable clients to improve marketing strategies, develop competitive intelligence, increase customer retention and find out for themselves, what respondents have to say.

Cross-Tab integrates multiple research methodologies, so businesses have a bird's-eye-view of the complete customer experience. Cross-Tab is today working closely with many leading businesses and agencies across North America, Europe and Asia Pacific.

Their name Cross-Tab is derived from the term ‘CROSS-TABulation', an oft-used market research tool that examines responses to one question, relative to responses to one or more other questions.

Professional Memberships & Affiliations

Cross-Tab is a member of key industry bodies and adheres to their standard code(s) of conduct. We are members of:

ESOMAR (European Society for Opinion and Marketing Research)CASRO (The Council of American Survey Research Organizations)AMA (American Marketing Association)MRSI (Market Research Society of India)

Philosophy and Vision

Their vision is to provide our clients with market research, data collection and data analysis solutions through an open and transparent relationship, aimed at achieving common goals and establishing long-lasting co-operations.

Cross-Tab's strategy is to understand the needs of the client and help them identify the best solutions, in the perspective of an optimal cost-benefit ratio. Towards this, we offer a high technology infrastructure with cutting edge tools, strategic inputs and resources that can help you redefine and reposition yourself and make bold growth in a competitive environment.

Article Resources:Cross-tab.comN Shivapriya is the cheif editor in the Economic Times, Mumbai and the article appeared in one of their successful columns called "Starship Enterprise.

I am a 45-year-old businessman from Gujarat. Currently, I have a trading business operational out of Mumbai and Gujarat. However, it is not performing as well as I had hoped it would. Moreover, my worries have multiplied as I have had a string of unsuccessful business ventures before starting this business. This has started affecting my decision making. I am worried that I might fail in this business as well, as I did in my previous experiences. How do I deal with this phase in my entrepreneurial venture? Please advise.

Captain G. R. Gopinath

INDIA today is a country abounding with opportunities and optimism. The 9% GDP growth rate of the past few years, coupled with rising incomes and progressive liberalisation, has inspired a wave of first generation entrepreneurs to the fore. Newage entrepreneurs, both small and big, are making a foray into diverse sectors and pioneering new opportunities and potential.

You can be an entrepreneur and achieve your dreams regardless of where you are right now. Do make sure you have a vision, a well researched plan in place and stay positive? It also helps to take a long view as you may have to take a step back to survive for the next day.I often tell people that, we cannot let the fear of stumbling make us give up walking and moving ahead. I have not studied management nor do I follow B-School jargons. I believe in taking risks, pursuing challenges and innovating at every step. I largely rely on my gut instinct which is backed by exhaustive reading and discussions.

CAUSE AND EFFECT:

In a business the two most important activities are cost optimisation and increasing profit/income. It is critical to study the market, the opportunities to differentiate your product in the market and provide the consumer more reasons to acquire it than ignore it. To identify what you are doing wrong, you have to come clear on your own strengths, weaknesses and objectives. Specify your goals and the course of action you believe will lead to it. You refer to your trading business spread between Mumbai and Gujarat. You need to understand your business space, your competitors and above all your target consumer. Think for yourself. Disengage yourself from what everyone in your industry is doing or saying. Do your own research exhaustively on your market, competition and the product.

INNOVATE:

Unlock innovation. Start by taking a long, hard look at rules and behaviours inside your organisation that might be scuttling innovation in the first place. Don’t hesitate to challenge outlined assumptions. Do not restrict innovation only to the business product, work on your processes, structure, business model and even the market. Ask questions like “What if we do this differently?” or “ What if we target a different consumer base?” During the course, you can identify processes that will enable you to inch closer to your objective. Look for innovation from diverse and multiple sources. Innovation can stem from employees, partners, suppliers and also consumers, make sure that you are not ignoring any of them.

I was born in a remote village in Karnataka where my father was a school teacher. I studied in a Kannada medium school till class 7 .After graduating from the National Defence Academy I fought in the 1971 Bangladesh war and later served in the Indian Army for eight years. I knew I had to leave my sheltered army life and explore new opportunities but I hadn’t figured out what I wanted to do. I took premature retirement in 1978 and with Rs 6,000 in my pocket left for my village with plans to till my ancestral land. That decision turned out to be the turning point of my life. As luck would have it, a dam built on River Hemavathy had submerged our lands in exchange for which the government allotted us 40 acres of barren land which no one in my family wanted, due to its inaccessibility. I decided to live on the land and give it a try.

With loans from family and friends I started with agriculture which proved to be a constant struggle leading to perpetual debt. I learnt about sericulture and decided to move away from the traditional techniques and adopt modern sericulture practices which are cost effective, environmentally safe and sustainable in the long run. Finally, the gamble paid off, I made profits and was able to pay off my debts. The eco friendly technique of silk farming also earned me the Rolex International Award in 1996.

While there is no recipe for success, you should keep in mind that sometimes innovation is first met with hardship. Many times there is a lot of push back. It is important to remember why you started the business in the first place. If the dream inspires you keep on fighting, if not, it is better to change course. Most importantly, learn to assimilate failure. No failure or disappointment is a closed chapter. It is an invaluable opportunity to rectify errors, and move forward.

EXECUTE:

While planning is important for progress and success. It is execution which becomes the undoing of great plans and strategies. It is critical to motivate your team to identify with your vision and help them pursue and achieve their potential. A good thumb rule is ‘Ready, Fire, Aim.’

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